Intraday Market Thoughts

BOJ Rocks Markets Twice; CAD GDP and Chicago PMI Is Next

by Patrik Urban
Oct 31, 2011 11:35

BOJ governor's shocking words sends JPY higher; German retail sales rose but less than anticipated; Eurozone CPI higher and unemployment rate at 15 months high. Market turns to Canadian GDP and US Chicago PMI.

USD is the relative strength winner today as higher risk aversion combined with BOJ intervention sends the greenback higher across the board. European equity indices are in the red, losing about 1%.

After USDJPY hit another historical low at 75.35 earlier during the Asian session, Japanese officials decided to unilaterally intervene in the market and weaken the JPY. USDJPY jumped nearly 400 points from 75.55 to 79.52 within few hours. In subsequent press conference BOJ governor Shirakawa shocked the market when he said that JPY rise has merits for the Japanese economy. These surprising words erased nearly 200 points off the intervention effect as USDJPY plunged back to 77.80. If the Japanese ministry of finance hopes to have a lasting impact on the JPY rate, it will have to bring USDJPY back towards to highs swiftly otherwise we are likely to see pre-intervention levels within few sessions.

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German retail sales grew 0.4% in September from -2.7% in August which was still below analysts expectations of +1.1%. More importantly, annual figure dropped to 0.3% from 2.5%.

October Eurozone CPI inched up to 3.0% from 2.9% on annual basis and September unemployment rate rose to 10.2% from August 10.1% which is the highest rate in over a year. To make it worse, even the August figure was revised higher from an initial estimate of 10.0%.

The ECB is buying Italian bonds again in attempts to push the 10 year yield lower. It has been unsuccessful so far as the bond continues to yield over 6%, currently 6.08% reigniting fears that Italy could be the next victim of Eurozone's crisis. Even the expanded EFSF would not be able to provide significant financial aid, should Italy need it. Meanwhile in Italy, the consumer price level increased to 3.8% in October from previous 3.6%.

In the UK, Mortgage approvals declined to 51k in September from 52.3K in August and net consumer credit expanded GBP 0.6bln from GBP 0.5 bln

The NY session starts at 8:30 am ET with Canadian August GDP that is expected at 0.2% from 0.3% (2.2% from 2.3% y/y). Higher retail sales and relatively strong labor market could lead to a positive surprise and in that case the CAD could stay below parity for the next few weeks to come.

Chicago PMI is due at 9:45 am ET and is seen slightly lower at 59 in October from 60.4 in September and October Dallas manufacturing activity is anticipated better at -5 from -14.4.


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